The problem? Not enough of the lithium-ion batteries that power its all-electric vehicles.

So CEO Elon Musk, who always thinks big, is talking with growing urgency about the need to build a "giga factory" to ensure a steady supply of battery cells for the Model S, the forthcoming Model X SUV and the $35,000 "Gen III," currently aimed to hit the market in 2017. Tesla has ambitions to eventually manufacture 500,000 cars a year at its Fremont factory, and Musk told analysts earlier this month he's envisioning a "really giant facility," something "comparable to all lithium-ion production in the world in one factory."

"The main constraint on our production is really the cells," Musk explained. "We are not quite ready to make a big announcement on the cell and battery giga factory, but we are exploring a lot of these options right now."

Phil Gow, a battery engineer who used to work for Coda Automotive, said a giant battery factory would come at enormous cost, especially if built in North America, which Musk said is likely.

"Battery plants on the scale Elon is talking about are billion dollar investments," he said. "But it seems that if Elon wants to find a way to do something technical, he does it."

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Each Model S sedan contains more than 7,000 lithium-ion battery cells, which Tesla gets from Panasonic. While the battery cells are similar to those used in laptops and game consoles, Tesla's are specifically designed for electric vehicles and were jointly developed by Tesla and Panasonic.

"There's a shortage of the cells that Tesla uses. There's not a shortage of lithium-ion in general," said Sam Jaffe, a senior research analyst at Navigant Consulting, who said Panasonic can meet Tesla's current demand, but not much beyond it.

A row of Model S sedans lines up beside a Supercharger station at Tesla Motors' factory in Fremont, Calif., on Friday, Aug. 16, 2013. (ANDA CHU/Staff)

Tesla said in a recent regulatory filing that it is making 550 cars a week at its Fremont factory and will deliver 21,500 Model S sedans worldwide in 2013.

"We are presently not constrained by demand, but instead by our ability to ramp production," Tesla said in the filing. "While we continue to ramp production, in the near term the increase in cell capacity from our supplier is a key constraint that we are managing."

Tesla and Panasonic, based in Osaka, Japan, have a strong relationship. Panasonic invested $30 million in Tesla in 2010. In 2011, the two companies finalized an agreement for Panasonic to provide Tesla with roughly 640 million automotive grade lithium-ion battery cells, or enough to build more than 80,000 vehicles, over the next four years. Last month, that agreement was nearly tripled to 1.8 billion cells.

Those cells will be used in both the Model S and the Model X. But the Tesla news release includes no mention of the Gen III, raising speculation that Tesla is talking to other suppliers, including South Korea's LG Chem and Samsung SDI. Some analysts speculate that Tesla will start its own battery company, while others say it would jointly operate the "giga" factory with an existingpartner like Panasonic.

"Elon Musk is looking to the future, and this is a classic insourcing/outsourcing story," said Bruce Belzowski, an assistant research scientist at the University of Michigan Transportation Research Institute. "Panasonic is covering what they need right now, but the battery is core to Tesla's business."

Mike Omotoso, senior manager of global powertrain forecasting at LMC Automotive, notes that Tesla's supply constraints are not unique in the auto industry, and that several carmakers are currently struggling to get enough parts. As the economy continues to improve, his firm expects U.S. light vehicle sales to grow to 16 million in 2014, up from an anticipated 15.6 million this year.

"The situation might get worse next year with vehicle sales expected to grow faster than some suppliers can handle," Omotoso said. "It seems like Elon Musk likes to have a vertically integrated business. Vehicle manufacturing, supercharging stations, bypassing the franchise network, service, and battery manufacturing."

Tesla also has deals to supply batteries for the Toyota RAV4 EV as well as the Mercedes-Benz B-Class electric vehicle, another reason securing an adequate supply of battery cells is critical to the company's growth.

Tesla's stock, which reached a high-flying peak of $194 on Sept. 30, has tumbled back to earth in recent weeks amid reports of three separate fires involving Model S sedans in Washington state, Mexico and Tennessee. No drivers were injured, and Tesla has no plans for a recall. But Musk's repeated comments about production constraints have spooked some on Wall Street.

"Some investors doubt that Tesla can find enough batteries to fuel growth," said analyst Theo O'Neill of Litchfield Hills Research, who remains bullish on the company. "But they miss the point that the battery format chosen by Tesla is likely to become the EV industry standard, which will drive further supply."

Jaffe, of Navigant Consulting, notes that Tesla is struggling with a common issue in the auto industry: the risk of single-source suppliers.

"Panasonic and Tesla have a deep relationship, but Panasonic has a stranglehold on Tesla right now," he said. "No car manufacturer wants to be at the mercy of their suppliers."

Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.